SEC lawyer keeps eye on Stockton

STOCKTON - The city's contentious bankruptcy has caught the attention of an attorney for the U.S. Securities and Exchange Commission, the federal agency that polices financial markets.

Scott Smith

STOCKTON - The city's contentious bankruptcy has caught the attention of an attorney for the U.S. Securities and Exchange Commission, the federal agency that polices financial markets.

SEC bankruptcy attorney Sarah Moyed of Los Angeles, who filed a two-page notice in Stockton's case, said Monday it is common practice for her office to monitor corporate bankruptcies.

They also keep tabs on less frequent municipal bankruptcies, such as Stockton's. The SEC has taken similar action in Jefferson County, Ala., which filed Chapter 9 late last year.

"Because they issue public securities, we have an interest in protecting investors to the extent that they have rights," Moyed said.

She filed a two-page notice asking the court to provide her with every piece of paper filed in Stockton's case. Moyed will monitor developments and decide whether the SEC needs to intervene, she said.

Stockton filed its Chapter 9 case June 28. A fight taking shape in the case is between bond insurers and the California Public Employees' Retirement System, which manages the city employees' retirement fund.

"It's no surprise the SEC will want a ringside seat in the event things heat up between CalPERS and bond holders," said San Francisco Attorney Michael Sweet, a partner at Fox Rothschild LLP.

Two firms that insure millions worth of Stockton's bonds have challenged the city's eligibility to seek Chapter 9 protection.

They are Assured Guaranty, which insured a $125 million pension obligation bond on which the city defaulted, and National Public Finance Guarantee Corp.

Both creditors have argued in part that the city didn't ask CalPERS, the nation's largest public employee retirement fund, to take a loss in pre-bankruptcy mediation.

U.S. Bankruptcy Judge Christopher Klein, who is overseeing Stockton's case, is expected to hold a trial on the city's eligibility in January at the earliest, and the SEC will certainly keep a close eye.

Klein is expected to hold a hearing in the case next on Sept. 18 to rule on various motions.